Sticks and Carrots in Procurement
AbstractWe study differently framed incentives in dynamic laboratory buyer-seller relationships with multi-tasking and endogenous matching. The experimental design tries to mitigate the role of social preferences and intrinsic motivation. Absent explicit incentives, effort is low in both tasks. Their introduction boosts efficiency substantially increasing effort in the contractible task, mildly crowding it out in the non-contractible one, and increasing buyer surplus. Bonuses and penalties are equivalent for efficiency and crowding-out, but different in distributional effects: sellers' surplus increases with bonuses as buyers' offers become more generous. Buyers tend to prefer penalties, which may explain why they are dominant in procurement.
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Bibliographic InfoPaper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0105.
Length: 41 pages
Date of creation: Jan 2010
Date of revision:
bonuses; business-to-business; contract choice; experiment; framing; explicit incentives; incomplete contracts; loss-aversion; motivation; penalties; procurement; multi-tasking; relational contracts; rewards.;
Other versions of this item:
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-23 (All new papers)
- NEP-CBE-2010-01-23 (Cognitive & Behavioural Economics)
- NEP-CTA-2010-01-23 (Contract Theory & Applications)
- NEP-EXP-2010-01-23 (Experimental Economics)
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